The New New Deal (3 page)

But the Recovery Act did update the New Deal for a new era. It was Obama’s one shot to spend boatloads of money pursuing his vision, a major down payment on his agenda of curbing fossil fuel dependence and carbon emissions, modernizing health care and education, making the tax code more progressive and government more effective, and building a sustainable, competitive twenty-first-century economy. It’s what he meant by “reinvent the economy to seize the future.”

F
or starters, the stimulus did provide stimulus.

The Recovery Act injected an emergency shot of fiscal adrenaline into an economy that was hemorrhaging over 700,000 jobs a month. The leading independent economic forecasters—firms like Macroeconomic Advisers, Moody’s Economy.com, IHS Global Insight, J.P. Morgan Chase, and Goldman Sachs, as well as the nonpartisan Congressional Budget Office—all agree that the stimulus helped stop the bleeding, averting a second depression and ending a brutal recession.
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The Recovery Act wasn’t the only government intervention that helped stabilize the patient. The Federal Reserve’s emergency support for the financial sector, Obama’s unpopular rescue of the auto industry, and the even less popular Wall Street bailout that began under Bush all helped keep the economy afloat. But on the job loss graphs from the Great Recession, the low point came right before stimulus dollars started flowing.
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Then the situation slowly began to improve.

The Recovery Act followed the crisis response manual of the late British economist John Maynard Keynes, the godfather of fiscal stimulus. Keynes urged policymakers—including Roosevelt, who didn’t listen too carefully—to “prime the pump” during downturns, to pour gobs of public money into their economies when private money was in hiding. The idea was to halt the classic death spiral where businesses facing weak demand lay off workers, which further weakens demand as laid-off workers stop spending, which leads to further layoffs and weaker demand. That’s the nightmare Obama inherited after his inaugural parade. Credit was frozen, consumer confidence the lowest ever recorded. The economy was shrinking at an unheard-of 8.9 percent rate, although no one knew the numbers were that horrific at the time.
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“It was obvious that the economy was going to hell,” recalls Berkeley economist Christina Romer, the first chair of Obama’s Council of Economic Advisers and coauthor of the infamous 8 percent unemployment report. “The question was the degree to which the economy was going to hell.” Obama’s team seriously underestimated that degree.

Nevertheless, the Recovery Act airlifted record amounts of Keynesian stimulus out of the Treasury to resuscitate demand: tax breaks for businesses and families to get cash circulating again; bailouts of every state to avert layoffs of teachers, police officers, and other public employees; one-time handouts to seniors, veterans, and the disabled; generous expansions of unemployment benefits, food stamps, health insurance, and other assistance for struggling families. The stimulus also put people to work directly with over 100,000 projects to upgrade roads, bridges, subways, water pipes, sewer plants, bus stations, fire stations, the Joseph R. Biden Jr. Railroad Station in Wilmington, Delaware, federal buildings, Grand Canyon National Park, trails, libraries, courthouses, the “national stream gauge network,” hospitals, Ellis Island, seaports, airports, dams, locks, levees, Indian reservations, fish hatcheries, coral reefs, passport offices, military bases, veterans cemeteries, historically black colleges, particle accelerators, and much more.

Today, those independent analysts believe the Recovery Act came close to achieving its goal of saving or creating at least 3 million jobs in the short term.
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The concept of “saving or creating” has inspired a lot
of sarcasm—Obama joked after his annual Thanksgiving pardon that he had just saved or created four turkeys—but it simply means that close to 3 million more people would have been unemployed without the Recovery Act.

Unfortunately, the housing and banking apocalypse that preceded it wiped out about eight million jobs, so it didn’t come close to filling the entire hole. Unemployment soared to double digits while it was still kicking into gear. State and local governments offset much of its impact with anti-Keynesian austerity, raising taxes, slashing spending, and sucking money back out of the economy. Still, the CBO and the private forecasters concluded that at its height, the Recovery Act increased output over 2 percent, the difference between growth and contraction.
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It also helped balance every state budget, sparing public jobs and public services from the chopping block; many Republican governors attacked it as out-of-control spending, but all of them took its cash. It made a painful time less painful, helping millions of victims of the Great Recession keep food on their tables and roofs over their heads. And the Chicken Littles who warned that a $787 billion fiscal stimulus would lead to runaway inflation or exorbitant interest rates were wrong. Inflation remained extremely low, interest rates historically low. The stimulus didn’t end America’s very real pain, but then again, the New Deal didn’t end the Depression. World War II ended the Depression.

Political critics have seized on that historical fact to try to discredit Obama’s stimulus, ignoring the more salient facts that Roosevelt’s commitment to stimulus was sporadic, the New Deal’s stimulus did reduce unemployment when it was in effect, and World War II was the mother of all stimulus programs. But facts have not driven the debate. Republicans have stuck to their failed-stimulus message with impressive discipline. They’ve argued that government simply can’t create jobs, often while attending ribbon cuttings for job-creating stimulus projects in their districts; that government shouldn’t help private companies, often while writing letters seeking stimulus funds for firms in their states; and that government can only create government jobs, even though all of America’s post-stimulus job growth has been in the private sector.
They’ve argued that Keynes was wrong about stimulus, except when it comes to high-end tax cuts, military spending, and other stimulus they like. They’ve portrayed the Recovery Act as larded with earmarks, when it was the first modern spending bill with no earmarks, and riddled with fraud, when investigators have been amazed by the lack of fraud.

It’s been a brilliant strategy, and it planted the seeds for the Republican comeback.

“The stimulus was an Alamo moment for us, but we stuck together and made it out alive,” says Republican congressman Tom Cole of Oklahoma. “Now ‘stimulus’ is a dirty word.”

He’s right. A colossal package of tax breaks and spending goodies that were almost all popular individually has become toxic collectively, as if the proper response to the crisis would have been a stiff upper lip, as if Herbert Hoover had it right the first time. Obama has struggled to explain the counterintuitive Keynesian insight that government needs to loosen its belt when families and businesses are tightening theirs. He has also struggled to make the counterintuitive political case that things would have been even lousier without the Recovery Act. It’s true, but his slogan wasn’t Yes We Can Keep Things From Getting Even Lousier. He didn’t promise to create a somewhat-less-weak middle class. He always made it sound like the problems he inherited from Bush were kinetic problems, not thermodynamic problems.

As a kid rambling around Scranton, Pennsylvania, when Biden would break an arm or dislocate a hip, his mother would say:
Joey, it could’ve been worse. You could’ve broken both legs. You could’ve crushed your skull
. As the White House point man on the Recovery Act, Biden felt like he was recycling his mom’s talking points, trying to persuade America to feel grateful its injuries weren’t fatal. It’s hard to get credit for averting a catastrophe, because once catastrophe is averted, people focus more on the pain they’re feeling than the worse pain they might have felt in a hypothetical no-action case.

“One thing they never taught us in grad school was how to sell Keynesian stimulus,” says Biden’s former chief economist, Jared Bernstein, the other coauthor of the overoptimistic unemployment report.
“‘It Would’ve Been Even Worse Without Us’ is just a fruitless message.”

I
n any case, the ferocious debate over the short-term Recovery has obscured the long-term Reinvestment.

ARPA-E didn’t create any jobs in 2009, except for Majumdar’s and his team’s, and it didn’t create many after that. But the stimulus was only partly about stimulus. It was also about metamorphosis. ARPA-E amounted to just 0.05 percent of the Recovery Act—a new Manhattan Project in a rounding error—and most of its breakthroughs won’t produce results for years. But it’s emblematic of the law’s assault on the status quo. MIT professor Don Sadoway, a mad scientist in a bolo tie, has a radical vision of a liquid battery the size of a tractor-trailer that could store electricity for entire neighborhoods, so that renewable power could run our refrigerators when the sun isn’t shining and the wind isn’t blowing. He’s got a prototype the size of a shot glass; his $7 million ARPA-E grant is helping him scale up to the size of a hockey puck and then a pizza box. Sadoway snorted when I asked how many jobs his grant had created: “If this works, I’ll create a million jobs!”

Republicans have howled that many stimulus projects have little to do with short-term stimulus—and they’re right. There was nothing “shovel-ready” about bullet trains designed to connect Los Angeles to San Francisco in under three hours, broadband cables designed to bring rural towns into the wired world, electronic health records designed to drag medical bureaucracy out of the leeches era, smart dishwashers designed to run when electricity is cheapest, automated factories that will manufacture electric trucks in Indiana instead of China, the first U.S. testing facility for wind turbine blades as long as football fields, or research into a new generation of “space taxis” that might replace NASA’s shuttle someday. But these are the kind of long-term investments—more than one sixth of the stimulus—that Obama chief of staff Rahm Emanuel had in mind when he said “you never want a serious crisis to go to waste.” The Recovery Act is also financing the world’s largest wind farm in Oregon and the world’s most powerful X-ray laser in California.
It’s funding the largest photovoltaic solar array, largest solar thermal plant, and largest effort to install solar panels on commercial rooftops.

None of those projects was shovel-ready, either, but they were all deemed shovel-worthy.

The Recovery Act’s most important long-term changes aimed to jump-start our shift to clean energy, reducing our carbon footprint, our electric bills, our vulnerability to oil shocks, and our subservience to petro-dictators while seeding green new industries. The stimulus converted Chu’s cobwebbed department into the world’s largest clean-tech investment fund. Overall, it pumped about $90 billion into green energy, when the United States previously spent a few billion a year.

The scale is almost unimaginable. Secretary Chu’s Office of Energy Efficiency and Renewable Energy, which had a $1.2 billion budget, got a $16.4 billion infusion. New Jersey’s state energy program received a 9,500 percent funding increase. The Recovery Act will also triple the smart meters in homes, quadruple the hybrids in the federal fleet, and expand electric vehicle charging stations forty-fold. It’s creating an advanced battery industry almost entirely from scratch, increasing the U.S. share of global capacity from 1 percent when Obama took office to about 40 percent in 2015. Yes, Solyndra failed, but thousands of other green stimulus investments haven’t.

The stimulus is also stocked with non-energy game-changers, like an initiative to sequence over 2,300 human genomes to help fight diseases like cancer and schizophrenia, when only thirty-four had been sequenced before. Or a $20 billion effort to computerize our pen-and-paper health system, which should reduce redundant tests, dangerous drug interactions, and fatal errors caused by doctors with chicken-scratch handwriting. Or the “Race to the Top” competition to promote data-driven reforms of public schools, which prompted dozens of states to revamp their education laws before they even submitted applications. Or the website recovery.gov, which lists every stimulus contract and lobbying contact, along with quarterly data detailing where all the money went.

At a time when government wasn’t supposed to be able to run a
one-car funeral, the Recovery Act was a real-time test of a new administration’s ability to spend tax dollars quickly, honestly, and effectively—and to reshape the country in the process.

“America said it wanted change,” says Obama’s education secretary, Arne Duncan. “Well, this is it!”

T
he stimulus had its roots in Obama’s 2008 campaign agenda, which was mostly ignored while the media obsessed about his incendiary pastor, the ads comparing him to Paris Hilton, and other issues that had nothing to do with policy issues. It was put together during Obama’s chaotic presidential transition, while the press focused on who he would choose for his cabinet, which of his nominees hadn’t paid taxes, and what breed of dog he would give his daughters. It passed during his whirlwind first hundred days, when it competed for attention with his rescue plans for the auto, banking, and housing industries, his breaks with Bush on issues like torture, stem cells, and fuel efficiency, and controversies over everything from his handshake with Venezuelan strongman Hugo Chávez to the attempted sale of his Senate seat. Then its rollout was overshadowed by Obama’s epic battle over health care; his push to end the war in Iraq and expand the war in Afghanistan; the rise of the Tea Party, which held its first rally ten days after he signed the Recovery Act; the weak economy; the Republican revival; and the constant dramas over Somali pirates, Iranian nukes, Supreme Court nominations, financial regulations, beer summits, birth certificates, and killings of international terrorists that add up to an eventful presidency.

Ultimately, one of the most sweeping pieces of legislation in modern history was reduced to an afterthought. In April 2011, Obama’s most influential supporter asked him on national TV whether he wished he had started his presidency by focusing on the economy instead of health care. “Oprah, I’ve got to tell you, we did start with the economy,” Obama replied with evident irritation.
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“Remember, the first thing we
did was pass a Recovery Act.” Polls have found that most Americans see the stimulus as a giveaway to bankers, confusing it with the $700 billion financial bailout that passed before Obama was elected. I interviewed several congressmen who were under the same misimpression.